June 27, 2019
Friday evenings are set aside as a time for the Research Team huddle here at MEDICI. It's hard to keep track of everything FinTech these days; but thanks to our Analyst team, we are always on our toes! The article that caught our attention this week was about 2868 bank branches being closed in the UK between 2015 and 2018. We asked ourselves why was this happening. Was that report chronicling an exceptional event, or was there a trend at work? The team decided to dive deeper into this and found that there is indeed a growing trend of bank branches being shut down globally. This can be seen in the decline of bank branches in a majority of the countries around the globe, with countries like India, Hong Kong, and New Zealand as exceptions. Consider the following numbers:
Despite the global decline of physical bank branches, there remains, evidently, a large segment of the financially-included population which prefers to conduct banking transactions via physical branches. While consultants manipulate ideas, bank executives ground their confidence in the continued relevance of a bank branch in hardcore numbers. They believe the closure of bank branches may hurt revenue more than help reduce costs. This belief seems to be backed up by Reuters, which reported, physical bank branches remain crucial for acquiring new customers and doing more business with existing ones. According to Jonathan Velline, Head of Store Strategy, Wells Fargo, “Our customers still want to visit us. They’re still coming to our stores and our ATMs at pretty consistent rates.”
Our hypothesis in this story, therefore, is that the decline in the network of bank branches, globally, is mistakenly seen as the early dusk of the physical branch.
Physical branches bring many marketing benefits to the bank, as branches remain a dominant method of opening an account (for both simple and complex accounts), as per a Deloitte survey. Physical branches also provide physical comfort to customers while dispensing cash and coin. They serve to build customers’ trust that the bank will safeguard their money and data, which results in higher customer satisfaction.
A senior executive at Cognizant backs this up. According to Tony Virdi, VP/Head of Banking at Cognizant, “One thing is clear: Bank branches are here to stay. They’re not in demand like they once were, due to the rise of digital banking. However, retail branches will continue to maintain a prevalent role in acquiring, retaining, and serving customers across digital and physical channels. Fewer, smaller, smarter, and more open: That’s the future of retail bank branches.”
The major reason physical branches of banks are shutting down is that banks forecast. People will avail their services more through their digital channels and less by visiting the bank branches. It is evident that maintaining a purely physical branch is a challenge in this digital age, and we have listed, below, some reasons as to why banks are moving away from purely physical branches to phygital (physical + digital) ones.
Challenges of running a purely physical bank branch
High Cost: The significant expenses associated with running a purely physical branch can be attributed to the lease paid or the high cost of land bought for running the branch. Not to mention, the salary cost of the tellers and the staff, and the cost of maintaining the cash distribution network for running the branch. Furthermore, physical branches are estimated to cost banks $4 per transaction on average, while PC and mobile-banking cost $0.09 and $0.019 per transaction, respectively.
Physical Experience: Most of the purely physical branches lack the digital touch and are often old, under-occupied, and poorly maintained. The newer branches that were opened a few years back are also poorly maintained, and hence, provide a poor customer experience.
Tracking: In order to provide high-quality customer experience, it is important to track customer engagement in the branch. The complex interactions held in the bank between the staff and customers are difficult to track without recourse to technology, and hence, it is difficult to deliver a constant, distinctive customer experience over time.
Operating Challenges: Banks face a major hurdle in managing the capacity of a branch when there are several small branches involved. It becomes a problem for the bank in terms of cost when there is a limited number of customers visiting. In addition, the branches’ personnel require constant training to maintain a consistent customer experience, which is an added expense.
Now, with neo-banks being on the rise, those players still cannot ignore the fact that physical branches continue to play an important part in serving a large section of customers who prefer transacting through physical branches. The neo-banks have, accordingly, started to use the existing infrastructure that is available across various countries to provide their banking services. Two such examples: one, when Monzo bank partnered with PayPoint – a UK-wide provider of payment services in corner shops – to allow deposits. And two, when Nickel, a French digital bank, decided to partner with 1.4 million convenience stores around the country to offer their customers physical cash withdrawals and deposits. These two partnerships are illustrative of the importance of physical touch-points when it comes to customers.
From a large bank’s perspective on maintaining physical branches, it becomes very important to enhance customer experience and build trust as soon as the customers walk in the door. A user may have a conversation with a chatbot through digital channels, but there is no meaningful conversation or trust developed. However, using the right technology and the human touch, a bank could create the kind of trust that, in this digital age, is needed to retain as well as acquire customers. Here is a list of some banks we’ve identified, that digitally transformed their branches for providing enhanced customer experiences:
BofA introduced three automated branches in Minneapolis and Denver, which consist of ATMs and meeting rooms for video conferencing. Customers can interact with the bank’s employees who are based out of other locations through video conferences to secure mortgages, credit cards, and auto loans. Customers can book a one-on-one meeting with a bank’s employee through the mobile application and can access the video conferencing facility by using the bank’s debit/ATM card for security measures. The bank has launched automated branches to increase the customer experience of its digital-savvy customers.
Image Source: American Banker
Odeabank has redesigned its Istanbul branch with the interior renovation and digital integration. The interior of the branch comprises a range of audio-visual technologies including large touchscreen tables, tablets, interactive screens, digital signage, room-wide overhead LED tickers, and sophisticated customer tracking that targets its marketing based on visitors’ gender and age. It allows customers to get loan estimates and information about new products and options through the tablets and interactive screens, while tabletop touchscreen displays can entertain and inform customers about the bank’s products. The bank aims at providing efficient customer experience with customer technologies to put guests at ease and provide improved engagement.
Image Source: Innova
OCBC Bank has implemented facial recognition technology (developed by NEC) in its Holland Village branch to identify the premier banking customers. The tool uses AI to identify the facial features of customers automatically in real time as they arrive at the bank. It is based on a VIP identification system that allows the Premier Service Manager (PSM) to promptly identify and greet OCBC Premier Banking customers in real time as they approach the branch’s lounge by their preferred name, offer them their preferred drinks and magazines, and understand their visit records to deliver personalized services promptly.
Image Source: Bahrain
Bank of Beirut has bought phygital innovation to its branches and has launched the ‘hybrid bank’ concept. A customer's visit to the bank is enhanced by providing them with both physical and digital experience. E.g., when a customer enters the room, he/she can interact with the bank’s representative in real time through interactive screens. The design of the new hybrid branch has been transformed from the classic branch look to a modern lounge, where customers can conduct online simulations, apply for loans, and make all their online banking transactions simultaneously through projections and screens.
Image Source: Bank of Beirut
In addition to revamping the physical branches itself, banks are also using robots that add excitement for the customer visiting the branch as well as encourage more customers to visit the bank to try out the new robots who provide necessary information to the customers. Below are a few of the banks who have incorporated robots in their branches.
HSBC Bank has launched Pepper’s AI-based robot in its US branches. The robot interacts with customers, pitches the product to them, and helps the banks’ executives in selling credit cards. The robot also cracks jokes, dances, and takes selfies – this helps HSBC in providing instant service to its customers with regard to queries, thereby enhancing the customer experience. This also drives more customers to the stores and enables the bank to serve a large number of customers at the same time.
Image Source: Softbank Twitter handle
Canara Bank has introduced two humanoid robots in two of its branches in Bengaluru. The robots, Mitra and Candi, have been developed in collaboration with SoftBank and Invento Robotics. Mitra greets customers in the local language and helps them to navigate the large premises of the bank while Candi responds to the range of questions that the customers have regarding banking processes and products. There are two modes for Candi: Normal and Banking. It can answer a range of questions in Normal mode, but in the Banking mode, it can only answer 215 questions, which is displayed next to it on a standee.
Image Source: Twitter
Kitakyushu Bank has launched a robot called Pepper No. 3, which greets customers who arrive at the bank. The robot is also capable of explaining some of the bank’s financial products. It introduces itself as an employee of the bank. The robot uses AI/ML to communicate with and read customers’ emotions. It also enhances customer experience by helping them with product information and queries. Pepper No. 3 has a screen on its chest, which is used to display its emotions after analyzing a customer’s interaction. The robot was jointly developed by SoftBank Mobile and French robot manufacturer Aldebaran Robotics.
Image Source: Portal Japan
With many banks digitally transforming their physical branches into a more modern version of their former selves, they can not only enhance efficiency but also increase sales, educate customers, and simultaneously cut costs. Some of the technologies being deployed in various areas that are helping them in their transitions for achieving their goals are highlighted below.
In the digital world, banks have been structurally transforming themselves as they have been designing delightful banking experiences for their online customers using UI/UX. Congruently, it becomes highly important to understand the pain points/ delightful engagements of the customer to create an impactful customer experience in physical branches. In a study by Samsung, it was found that the biggest complaint of customers visiting a bank branch was, the staff at the branches were unprepared for their service requests; a simple but significant problem.
As banks’ physical branches continue to adopt newer technologies, the role of the staff becomes more advisory with their focus shifting to higher-value financial services, products, and more complex interactions. Using training and data analytics, banks can enable their executives to have a more personalized experience. Consider, for instance, ANZ which uses data analytics to know their customers’ requirements based on an analysis of their spending patterns, transactions, and financial behavior. Then, there’s also the implementation of a Customer Engagement Engine (CEE) by the Commonwealth Bank of Australia, which empowers the front-line staff to have the next-best conversation based on financial behavior and transaction patterns of the customers. The use of technology can not only transform the physical dimension of branches but can also enable the banks’ staff members to create and offer delightful and unique experiences for customers. The key here is a human connection, which has been the core fundamental of physical banking over the years.
‘Phygital’ is the New Physical
As per historical data points, there is a decline in bank branches globally. However, what is yet to be seen is whether bank branches, on the whole, will decline, plateau or rise, going forward. One thing that will surely not happen is the complete extinction of bank branches, and our grandchildren will still have branches to visit in the future. As can be seen in the case of Canara Bank, HSBC, Kitakyushu Bank, Bank of America and Odeabank, which are among the banks digitally transforming their physical branches, other banks, too, have embarked on their own journeys of digital transformation. More so as they begin to realize that physical banking and digital banking cannot survive in silos, but need to evolve symbiotically, just as customer expectations do. The bottom line is, as Albert Pumpers, former UX architect at the UXDA (current board member and CCO at UXDA – UI/UX for banking and FinTech), emphasized, “Businesses should build technology and finance around customers, emphasize the user, and deliver needed solutions in a simple way. Similarly, banking, too, needs to undergo holistic digital transformation to connect with a new generation of customers across multiple levels – digitally, physically, and emotionally.”